Market Overview

Citi Believes Oceaneering's Inflection Point Is 'Off The Horizon'


With the offshore downturn likely to persist, an inflection in Oceaneering International’s (NYSE: OII) project sanctionings “appears off the horizon,” Citi’s Scott Gruber said in a report. He initiated coverage of the company with a Neutral rating and a price target of $27.

Oceaneering is likely to miss the consensus expectations for earnings by 30 percent in 2017 and by 10 percent in 2018. “We expect the negative sentiment toward offshore to persist through this customer budget cycle and foresee little prospect for multiple expansion,” analyst Gruber commented.

Continued Lack of Visibility

There would likely be further downward revisions in expectations, since floating rig demand is expected to continue declining and project sanctioning may remain low. These factors should exert pressure on Oceaneering’s results in 2018-2019, Gruber mentioned.

“Brownfield spend could pick up next year but a) the magnitude is likely to disappoint given low crude prices through budget season and b) by its nature, will hit backlog in close proximity to delivery,” the analyst wrote.

Dividend At Risk

The company pays $100 million per annum in dividend, which appears sustainable with an “EBITDA less capex estimate” of $200 million in 2017 and 2018. Gruber pointed out, however, that Oceaneering had transitioned “from a net cash to a net debt position with high leverage.” End-market uncertainty puts dividend at risk, since the company may reduce this to conserve cash.

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Latest Ratings for OII

Aug 2019MaintainsNeutral
Mar 2019UpgradesHoldBuy
Mar 2019Initiates Coverage OnNeutral

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Posted-In: Citi Scott GruberAnalyst Color Initiation Analyst Ratings


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